SBP did not declare crypto currency illegal, SHC told

KARACHI: State Bank of Pakistan had not declared crypto currency as illegal, joint director of SBP told Sindh High Court on Thursday.

Hearing petition against restriction on trading virtual currencies, SHC’s division bench headed by Justice Mohammad Karim Khan Agha directed deputy governor SBP to file his statement as to whether or not there was any law, rule or regulation which prevents the crypto currency business in Pakistan. The court directed the counsel of the SBP to go through comments already filed by the SBP and the petition so that he can answer the questions of the court concerning the ability for a person in Pakistan to operate and use the crypto currency for business. The court directed federal law officer to file comments on behalf of ministry of finance by January 13 observing that in case comments was not filed by the ministry of finance, the secretary finance shall appear in person and explain the position.

The court took exception over non-filing of comments by the federal investigation agency and ministry of finance despite court directions. The court issued show cause notice to deputy director FIA cyber crime Abdul Ghaffar on his non-appearance and directed him to reply as to why he has not complied the court order in letter and spirit. The court directed him to appear in person on next date of hearing and explain as how the FIA came to register an FIR against the petitioner. Petitioner Waqar Zaka had filed petition in SHC against SBP notification with regard to restriction on use of virtual currencies for trade and banking transactions and sought legality of virtual currencies and crypto mining. He submitted that virtual currency was internet based medium of exchange which uses crypto graphical functions to conduce financial transactions besides virtual currencies leverage block chain technology to gain decentralization, transparency and immutability.

He submitted that SBP had issued circular on April 6, 2018 advising all banks and payment system operators to refrain from processing, trading and promoting in virtual currencies token and not facilitate their account holders to transect in VC and tokens as it provide high degree of anonymity and can be used for facilitating illegal activities.

He submitted that transaction in virtual currency was more real time traceable than an ordinary transaction or transaction in paper currency. He submitted that SBP through impugned order had restricted the people of Pakistan to carryon business who were associated with technology based profession especially virtual currencies/assets which was blatant violation of freedom of business and occupation and could not be justified in any manner.

The court was requested to declare impugned order of SBP as unlawful as it is restricting the people to enter upon or carry on business which was not unlawful by any legal statute in Pakistan and direct the government to draft a regulatory framework that clearly define the official stance and mechanism regarding virtual currencies and assets and crypto mining.

SBP in its earlier comments defended its restrictions on trading virtual currencies and submitted that virtual currency like Bitcoin, Litecoin etc or initial coin offerings are not legal tender issued or guaranteed by the government of Pakistan.

SBP’s additional director of payment system department submitted that VC can become source of major frauds targeting illiterate population to exploit their urge for earning quick profits.

The SBP director said besides there was enhanced risk of money laundering and terrorism financing since the identity of users on VC network remains anonymous. SBP director said that SBP has no objection to the use of virtual technology and allowed block chain and distributed ledged based technologies to operate in Pakistan. He said that a couple of banks/microfinance banks have been given approval to use block chains based home remittance system to transfer money from Malaysia to Pakistan besides Ripple’s block chain based money value transfer system named X-current has also been allowed by the SBP to function in Pakistan in collaboration with the bank.

Dispelling the petitioner’s contention that absence of PayPal system affect Pakistan’s remittance system, SBP said that Pakistan has received over US$ 20 billion worth of remittance from abroad that include the contribution of over a billion US$ by freelancers. Besides, he submitted that number of gateways including payoneer, tranferwise, xoom, cyber source, master card internet payment gateway are already working in Pakistan in the absence of PayPal and facilitating the local customers adding that petitioner assertion that its next to impossible to receive payment for services rendered online is incorrect. SBP direction submitted that there was no restriction on entry/operation of any international payment gateway in Pakistan subject to compliance of related foreign exchange regulations adding that presently international payment gateway services through international payment schemes like master card and visa are already operating in Pakistan.

The SBP official however also offered companies like PayPal, Skrill offering digital payment services to come and establish their services in the Pakistan in line with relevant legal and regulatory framework. The court was requested to dismiss the petition with cost.